The ITV pension scheme has entered into the UK’s third largest longevity swap deal with Credit Suisse to fully hedge the longevity risk of the 12,000 members of the scheme.
ITV will make fixed monthly payments to Credit Suisse, while CS will in turn make payments that closely match the value of the benefits being. The new contract however, is expected to increase the scheme’s current deficit of £312 million by another £50 million.
The firm in an announcement made today to the stock exchange said the present deal is part of its long term strategy to minimize risks associated with the pension scheme.
The fixed payment to be made by ITV in future has a present value of about £1.7 billion, said Tower Watson, one of the advisers to the trustees on the deal.
“Typically, pension schemes expect today’s pensioners to live two or three years longer than they budgeted for a decade ago. Longevity swaps allow schemes to make one further adjustment and then nail down what they will be paying out,” said Paul Kitson, senior consultant at Tower Watson.
“Because the payments stretch so far into the future, arrangements for posting collateral are essential. A good governance structure is needed to make this work,” added Mr. Kitson.
The deal will cover longevity risks of all the members, said Trustee chairman Graham Parrott.
“The trustee has worked closely with ITV over several months and this agreement removes significant risk from the pension scheme and so therefore enhances the security of all members’ benefits,” said Mr. Parrott.
Last month, by extending its funding partnership with subsidiary SDN, ITV infused another £50 million in contingent assets into the scheme.
The extension of funding partnership will ensure that no further contributions will be necessary for the next four years in respect of longevity risk.